Posh Hotels Ltd$.($PHL$)$ is a small boutique hotel that provides $38$ suites that can be rented by the day, week, or month. Food service is available through room service as well. In addition, there are two suites that have been rented on a long$-$term basis to corporate tenants, who have access to their suite anytime throughout the year without making a reservation. The company has a December $31$ year end, and you are preparing the year$-$end financial statements using ASPE.

The following issues require your consideration:

$1.$ Cash

$$ The hotel keeps a significant amount of euro currency on hand to meet the needs of its guests. At year end, there was $12,000$ on hand. The year$-$end exchange rate was $$1\mathrm{.}35,$ and the average rate for the year was $$1\mathrm{.}42.$

$$ The bank statement balance at December $31$ was $$158,293.$ There were outstanding cheques of

$$52,375$ and an outstanding deposit of $$15,487.$ Bank charges per the bank statement were $$65$ for the month of December and have been recorded.

$2.$ Accounts receivable and allowance for doubtful accounts

$$ The hotel charges $$150$ per night for accommodation in one of the rental suites, and guests pay at the end of their stay, with daily revenue being accrued as it is earned. At December $31,$ the amount outstanding from short$-$term guests was $$10,500.$ At year end, management expects to be unable to collect an amount equal to $5\%$ of the outstanding receivables for this type of suite. During the year, sales amounted to $$1,750,000,$ and the balance in Allowance for Doubtful Accounts at the end of the previous year was $$15,000.$ During the year, $$32,000$ in accounts was written off.

$$ The two corporate suites are rented for $$45,000$ per year. The payment for these longer$-$term rentals is due in advance each July $1$ for the following $12$ months. One of these corporate suites has been in use for part of the year, but the corporate tenant went bankrupt and was unable to pay the $$45,000$ fee. Hotel management had hoped the tenant would eventually be able to pay, and it allowed the company to use the suite until the end of October. Since then, the hotel has been in negotiations with the bankruptcy accountant and expects to eventually receive a settlement of

$$10,000.$ The balance will become uncollectible; no allowance for doubtful accounts has been recorded with respect to these suites as there have never been collection problems in the past.

$3.$ Inventory

$$ PHL follows a policy of FIFO costing, and values items at the lower of cost and market based on an individual item basis.

$$ The hotel has a standing weekly order at set prices with a local catering firm. If the food is not eaten before the next delivery is received, it is donated to the local women's shelter. This ensures that all meals are of appropriate quality for the hotel guests.

$$ On December $31,$ the following items were delivered:

Item Unit Cost Net Realizable Value

$40$ chicken dinners $$5$ $$12$

$35$ beef dinners $$6$ $$15$

$75$ frozen vegetable servings $$1$$$2$

$75$ units of fresh fruit $$1$$$2$

$100$ desserts $$3$$$5$

$$ The invoice for the food delivery on December $31$ included an additional delivery charge of

$$0\mathrm{.}10$ per item, totalling $$32\mathrm{.}50.$

$$ On December $31,$ an ice storm resulted in a loss of electricity to the hotel building. As a result, $20$ chicken and $10$ beef dinners thawed and were unusable.

$$ The hotel also maintains an inventory of white terry cloth bathrobes and towels that are available for sale to its clients. At December $31,$ the following information is available:

Product Quantity Cost$/$Unit Selling Price$/$Unit

Bathrobes, assorted sizes $40$ $$49\mathrm{.}50$ $$85\mathrm{.}00$

Towels, extra$-$large $25$ $$19\mathrm{.}30$ $$18\mathrm{.}00$a

Towels, large $20$ $$15\mathrm{.}00$ $$28\mathrm{.}00$

aThe extra$-$large towels are no longer popular and management has decided to discontinue them. It offers the hotel staff a $20\%$ commission for all extra$-$large towels they sell at the sale price of $$18\mathrm{.}00.$

$4.$ Investments

$$ On December $1,$ PHL purchased a $$100,000,90-$day Canadian government treasury bill for

$$98,039$ to yield $8\%.$

$$ During the year, PHL purchased $30\%$ of the shares in Western Hotel Company, a company that owns a similar hotel property in a nearby city, for $$5$ million, a price corresponding to $30\%$ of its book value. Subsequently, Western Hotel Company paid a dividend totalling $$100,000$ and earned income of $$250,000.$ The fair value of the common shares as at December $31$ was

$$5,100,000.$

$$ PHL also purchased common shares of Dufort Corp. as a temporary investment for $$48,000.$ At the end of the year, these shares had a fair value of $$47,000,$ according to the December $31$ closing price on the Toronto Stock Exchange. A dividend of $$500$ was received during the year.

Assignment #$2$ Instructions:

Part A: Cash and Investment Presentation

Determine whether each financial instrument should be presented in the cash and cash equivalents or investment section of the statement of financial position. Place an X in the appropriate column in the table below.

Financial Instrument Cash and Cash